Volume XIX, No. 11 (No. 494)

Friday, November 17, 2017

A Biweekly Electronic Newsletter

 

Hurwitz & Fine, P.C.

1300 Liberty Building

Buffalo, NY 14202

Phone: 716-849-8900

Fax: 716-855-0874

         

Long Island Office:

535 Broad Hollow

Melville, New York 11747

Phone: 631-465-0700

Fax: 631-465-0313

 

Lake Placid Office

2577 Main Street

Lake Placid, NY 12946

Phone: 518-523-2441

Fax: 518-523-2442

 

www.hurwitzfine.com

© Hurwitz & Fine, P. C. 2017
All rights reserved
 

As a public service, Hurwitz & Fine, P.C. is pleased to present its biweekly newsletter, providing summaries of and access to the latest insurance law decisions from the New York State appellate courts.  The primary purpose of this newsletter is to provide timely educational information and commentary for our clients and subscribers. 

 

In some jurisdictions, newsletters such as this may be considered Attorney Advertising.

 

If you know of others who may wish to subscribe to this free publication, or if you wish to discontinue your subscription, please advise Dan D. Kohane at [email protected] or call 716-849-8900.

 

You will find back issues of Coverage Pointers on the firm website listed above.

 

Dear Coverage Pointers Subscribers:

 

Do you have a situation?  We love situations. 

 

We wish you the happiest of Thanksgiving. In troubled times, we need to take a moment to be thankful and appreciative of all the good things around us. We hope you have the time and opportunity to spend a day with loved ones and celebrate the beauty of all of our blessings.  We’ll have 14 at our house with two turkeys, one roasted and one smoked. Sweet potatoes, my famous three-mushroom bread stuffing (sweetened by candied walnuts and Craisins), some kind of vegetable (hopefully not kale) and a number of pies of various denominations will accompany the gobblers.

 

Hurwitz & Fine is pleased to present this issue of Coverage Pointers, our bi-weekly visit into your office and home, giving you the hottest coverage cases in New York State and throughout the country.  In our 18th year of continued publication, we review EVERY New York State coverage decision from the two weeks before the issue.  We provide summary, analysis and strategic advice; we discuss trends, review statutory and regulatory changes and do so without drowning you in case citation.

 

We want you to use this publication as a resource, to help you and your colleagues in claim handling and resolution. If you have a question about one of the decisions, call us and we would be happy to walk you through it. We really do love situations, we try to help our clients, and friends avoid problems and resolve cases expeditiously.

 

Educational Opportunities:

 

Our attorneys are regular participants in continuing education and continuing legal education programs. If you are interested in a specially crafted in-house program, we can provide that for you.

 

Need an In-House Claims Conference Speaker?

 

We revise our topical list as requests come in.  Here is a sample of programs provided in the past but we can create one for you:

 

  • Life after Burlington – How Do We Resolve “Additional Insured“Issues?
  • Tenders, Additional Insured Obligations, Indemnity Agreements and Priority of Coverage
  • Chaos Breeds Resolution: Mediation and the Role of Coverage Counsel in Resolving Chaos
  • Strategic Approaches to Resolving Insurance Coverage Disputes:  Do We Defend and Start a DJ? Do We Sit Back and Wait?
  • Good Faith, Consequential Damages and Extra-Contractual Liability - the New York Experience
  • NY Coverage Letters - Nuts & Bolts: How to Create and Write and Timely Send a Disclaimer Letter and NY’s Special Dangers with Reservation of Rights Letters
  • Uninsured and Underinsured Claims Handling
  • Preventing Bad Faith Claims - First Party Cases
  • Preventing Bad Faith Claims - Liability Cases
  • The Cooperation Clause - How to Handle
  • No-Fault Arbitrations and Appeals: Mock Arbitrations
  • The Serious Injury Threshold
  • No Fault Regs - Knowledge is Power
  • An Auto Liability Policy Primer
  • A CGL Policy Primer
  • A Homeowners Liability Policy Primer
  • EUO's Under First Party Policies
  • Insured-Selected Counsel: When is it Necessary and How to Avoid and Control?
  • ADR and How to Get to "Yes"
  • “Other Insurance”

 

Interested?  Drop me a note at [email protected] ,

 

More Education:

 

We thank those of you who attended the FDCC I-3 and/or the DRI Conference in Hartford, and took the time to say “hello” or write.  It was surely a pleasure to meet you.

 

The DRI Insurance Coverage and Practice Symposium is scheduled for NYC on December 7-8.  It is always a spectacular event. 

 

You will hear about Industry leaders’ perspectives on how to handle problem jurisdictions, regulatory intrusions into claims, insurance coverage for multiple occurrences, third-party payers, the ethics and strategy of defending an uncooperative insured and much, much more.

 

I am speaking on December 8th, bright and early at 8:05 AM.  The topic:

 

Hot Topics in Problem Jurisdictions

 

Learn about the latest first- and third-party challenges for insurers in New York and Florida including partial disclaimers, “assignment of benefits,” additional insured obligations, and extra-contractual claims. Could developments in these states soon find their way into your jurisdiction? 

 

I’m covering New York while Matthew J. Lavisky, of Butler Weihmuller Katz Craig LP, Tampa, FL will be focusing in on Florida.

 

If you work for an insurance company, you may be entitled to free admission to the program if you have a sponsor.  We’ll try to help you find a sponsor if you let us know.

 

Click here for the brochure and registration information.

 

Good stuff in this issue:

 

This issue presents a number of very interesting decisions from our appellate courts. There is a fascinating additional insured-priority of coverage decision out of the Second Department reported in my column, which is long, but worth reading.  It led to a long in-house discussion as we tried to dissect it and put it in context with Pecker Iron Works, another famous NY decision on the same subject.  You have to really love coverage to spend as much time on this decision as we did. See my discussion of Poalacin v. Mall Properties (II) in the attached issue.

 

Have you faced subpoenas seeking to the take the testimony of SUM adjusters, claims reps?  Have you received demands for your claims files?  You can significantly limit that intrusion if you read ahead. Do not turn over your claims file or submit to a no-hold-bars deposition of your claims professional without considering this next case.

 

Following the continuing trend to invade the sanctity of privilege between coverage counsel and insurers?  The Fourth Department, infamous for their Lalka decision of a couple of years back, has redeemed itself in a very helpful decision in Celani v. Allstate Indemnity Company et al.  It is the most helpful, and we say, well-reasoned decision on this topic in a long time.

 

Any questions just let us know. 

 

Jen’s Gems:

 

Greetings! 

 

I am writing this note as I continue to dig out from being on vacation (the one downside of being out of the office).  This year we took my two girls to Florida.  My parents have a condo in Bonita Springs, which is between Fort Myers and Naples.  When I am there, it always amazes me that the weather is consistently perfect.  We spent our time at the condo swimming in the pool and taking the girls to the beach.  Ella (who is five) is learning to swim by herself.  It is fun to see how much confidence she is developing in her own abilities, and Charlotte (who is two) just likes to float around with her swimmies on.  After a few days at the condo, we drove up to Orlando where we spent four days at the House of Mouse.  Ella was finally big enough (just barely) to ride the larger roller coasters.  And, let me tell you, that girl is fearless.  Rides that turned my stomach had no effect on her. 

 

But, beyond regaling you with stories of my vacation, I also wanted to highlight that we are just three short weeks away from DRI’s Insurance Coverage and Practice Symposium in New York City.  If you have not yet registered, there is still time!  The seminar will take place from December 7-8, 2017, in New York City at the Sheraton New York Times Square.  Below are the relevant links:

 

Seminar Registration Page: http://bit.ly/2tMYetT

Seminar Brochure: http://bit.ly/2h64LtD

Hotel Registration: http://bit.ly/2v5kkZ1

 

Walk-ins are welcome.  Hopefully, I will see many of you in December!

 

Until next issue…

 

Jen

Jennifer A. Ehman

[email protected]

 

Brooklyn Boys in South Carolina:

 

The Brooklyn Daily Eagle

Brooklyn, New York

17 Nov 1917

 

BROOKLYN BOYS PRAISE

SOUTHERN HOSPITALITY

 

(Special to The Eagle)

 

            Camp Wadsworth, Spartanburg, S.C., November 17—First Class Private Richard J. Mulhern and Private Peter Quinn, Company E, 106th U. S. Infantry, are loud in their praise of Southern hospitality after a very pleasant experience last Sunday.  After church, they were walking at random, when a local cotton manufacturer invited them to be his guests at dinner.  The two Brooklyn boys did not need much urging to partake of this diversion from army fare.  After a short speech of thanks (very short, Mulhern says) they adjourned to Mr. Bell’s home.  Here they were made acquainted with their host’s family. 

 

            “How that meal suffered!” writes Mulhern.  “And what surprised me most was how easily I was made to feel at home.  I never knew that I could eat with strangers before, but Mr. Bell made me feel that I was at home in Brooklyn.”

 

Tessa’s Tutelage:

 

Dear Readers:

 

This week we have a theme -- where there is smoke there is not necessarily fire. Just the other day our office had a litigation meeting where we address recent developments in the law and in our practice.  One topic of discussion was the use of attorney affidavits.  It was stressed that attorney affidavits were NOT sources of fact.  That, of course, makes quite a bit of sense.  The attorney in a case is not a party and—except in select circumstances—should not allow themselves to become a witness in the case.  Additionally, attorneys usually can only relate what they have been told—they usually do not have personal knowledge of a situation.  In one of our cases this week we have attorney affidavits used to prove a fact in a summary judgment motion. (I hope red flags are being raised for you). However, in this instance we have a twist! Here, the attorney affidavits were used to establish that the injured party did not show for their deposition.  Now, that is an instance where the attorney actually witnessed something first hand. Thus, the court determined that the attorney affidavit and the transcripts from the no-show deposition established that the injured party failed to appear.

 

In our other matter, an insurance company sought an Order from the Court instructing that it did not have to reimburse certain service providers because they had been fraudulently incorporated.  In New York, a service provider must comply with state and local regulations to qualify for reimbursement for No-Fault.  In this case, there was some evidence that the service providers were not doing that.  Specifically, it appeared that they were not controlled and owned by licensed professionals or physicians.  In New York, professional service corporations must be owned and controlled only by licensed professionals.  The insurance companies tried to establish that the service providers were not wholly owned by physicians because a non-attorney, allegedly in control of the companies, plead guilty to health care fraud and substantial funds (belonging to the service providers) were subject to governmental asset forfeiture.  Now, that seems really bad; however, the Court didn’t think this established that the non-attorney was controlling the accounts, even though his actions led to the forfeiture of the company’s funds.  Basically, as we all learned in middle school -- coming up with an answer is not enough.  You need to show your work. Plaintiff simply failed to show that the non-attorney controlled the companies involved. 

 

I hope you all have a wonderful weekend.

 

Tessa

Tessa R. Scott

[email protected]

 

 

Don’t Follow Next Time:

 

The Buffalo Enquirer

Buffalo, New York

17 Nov 1917

 

A Girl, a Smile and

Then a Shooting Bee

 

(By the International News Service)

 

            New York. Nov. 17.—Henry Sapairo, a garment cutter, is suffering from a fracture of the skull and a bullet wound in the wrist received in an attack by unseen assailants while following a pretty girl in Sixes street early this morning.

 

            Sapairo was seated in a café when the girl entered.  She smiled and beckoned as she left and he followed.

 

Ewell’s Universe (and Privilege Matters):

 

Dear Readers,

 

Last week I told you that the insurance industry, through counsel, is fighting back and challenging adverse rulings stripping insurers of their right to attorney-client privilege and work product protection. Today, we have a perfect example from right here in our home state of New York, captioned Celani v. Allstate et al. Our firm has been monitoring this case closely for some time now. We reviewed the appellate briefs. We watched the oral argument. The Fourth Department’s website was checked weekly. Fingers were crossed, anxiously waiting for a decision to come down. Then late last week, the long-awaited decision appeared.

 

Celani involved a discovery dispute between an insurer and a claimant, in which the claimant sought the insurer’s entire claims file that included a coverage opinion prepared pre-disclaimer by outside coverage counsel. The pre-disclaimer claims notes also discussed the substance of the attorney’s coverage opinion. The trial court ordered disclosure of the coverage opinion and related claims notes. Apparently, the trial court thought that attorney-client privilege did not apply to shield the documents from disclosure. The trial court also ordered production of the insurer’s reserve information. In addition, the trial court ordered that the insurer’s claims investigation manual be disclosed, even though the trial court had not reviewed it in camera.

 

On appeal, the Appellate Division, Fourth Department, set the record straight holding that coverage opinions and related claims notes, even if prepared pre-disclaimer, are “absolutely privileged” and “not discoverable.” As such, the Fourth Department has walked back its prior decision, Lalka v. ACA Insurance Company, by explaining that “documents prepared by an attorney that are ‘primarily and predominantly of a legal character,’ and made to furnish legal services, are absolutely privileged and not discoverable, regardless of whether there was pending litigation at the time they were prepared”. In addition, the Appellate Division also clearly held that an insurer’s reserve information is not discoverable because such information is not “material and necessary” to the action. In other words, reserve information has no relevance.

 

In our view, this case takes much of the sting out of the Lalka case by affording attorney-client privilege to insurers when they retain legal counsel for the purpose of obtaining legal advice. Insurers, there counsel, and claims professionals can rest easier, knowing that the Appellate Division has begun to recognize the right of insurance companies to retain counsel for the purpose of confidential legal advice, and actually have that information remain confidential. We hope that the other Appellate Divisions will take note and follow suit.

 

Keeping with our theme of privilege matters, we have a discussion of Illinois’ recent ruling on privilege by guest columnist, William McVisk. William is a coverage attorney and Shareholder at Johnson & Bell in Chicago, Illinois. He has been kind enough to explain to us Illinois law on the attorney-client privilege in insurer versus insured disputes and to address the significance of a recent Illinois court decision, Motorola Solutions, Inc. v. Zurich Insurance Company.

 

The following column was prepared entirely by attorney Bill McVisk, a great coverage lawyer from Johnson & Bell in Chicago.    He can be reached at [email protected] or by phone at 312-984-0229”

 

An issue that often arises in insurance coverage litigation is the extent to which an insured can shelter communications with its attorneys from an insurer that may have a defense duty or may be liable for paying a third party claim. Several years ago, the Illinois Supreme Court addressed this issue in Waste Management Inc. v. International Surplus Lines Ins. Co., 144 Ill. 2d 178, 579 N.E.2d 322 (1991), in which the court held that the attorney-client privilege does not protect from disclosure the documents in the underlying claim in subsequent coverage litigation, even when the insurer neither provided a defense nor participated in litigating the underlying suit. The court in Waste Management rested its decision on two separate bases. First, the court noted that the insurance contract included a cooperation clause that obligated the insured to cooperate with the insurer in the defense of the claim.  The court reasoned that this clause obligated the insured to disclose all facts to the insurer that are relevant to the claim to assist it in determining coverage. The court concluded that the plain language of the cooperation clause, which obligated the insured to "give all such information and assistance as the insurers may reasonably require," obligated the insured to "disclose contents of any communications they had with defense counsel representing them on a claim for which insurers had the ultimate duty to satisfy." 144 Ill.2d at 192, 579 N.E.2d at 328.

 

Second, the court reasoned that the common interest doctrine rendered the attorney-client privilege unavailable to the insureds. The court explained that under the common interest doctrine, when an attorney represents two different parties who each have a common interest, "communications by either party to the attorney are not necessarily privileged in a subsequent controversy between the two parties." 144 Ill.2d at 193, 579 N.E.2d at 328.  Since both the insured and the insurer had a common interest in defending the claim against the plaintiff, communications between the insured and defense counsel were not privileged as to the insurer. Id. 

 

The extent of the insurer's right to obtain the insured's attorney client communications was tested recently in Motorola Solutions, Inc. v. Zurich Ins. Co., 2017 IL App (1st) 161465.  In Motorola, the insured sued several insurers for breach of contract and declaratory judgment, seeking to require them to defend and indemnify the insured for four underlying personal injury actions alleging that the children of the insured's employees and contractors suffered injury due to exposure to various chemicals in the insured's "clean rooms" in its manufacturing facilities. One of the defenses to coverage asserted by the insurer was the timeliness of the insured's notice to the insurer of the claims.  As a result, it sought to obtain information from the insured concerning clean room safety program; due to the fact that a competitor of the insured had defended a number of lawsuits in the 1990s concerning alleged birth defects of children whose parents had worked in the manufacturing process in clean room facilities.  This caused the insured to institute a safety program and investigation at the direction of outside counsel.  The insurer contended that these documents were needed to establish the insured's knowledge of the losses for purposes of the notice conditions of the policies.  The insurer also sought documents concerning a sale of part of its business in 2003, which listed as a risk factor the link between clean room environments and certain illnesses.

 

The insured resisted the production on the basis of the attorney client privilege, while the insurer claimed that the privilege did not apply, relying on the Waste Management decision. The court in Motorola, over a vigorous dissent, ruled that the privilege applied.  The court distinguished Waste Management, noting that the insurer in Waste Management had sought documents from the litigation for which the insureds were seeking indemnification, while the insurer in Motorola was seeking documents that were created years prior to any litigation. As a result, the court did not consider the cooperation clause to apply, since the cooperation clause required the insured to "cooperate with the company … in the conduct of any suits …."  In Waste Management, this clause applied since the files the insurer sought concerned the suits at issue in the coverage litigation. In contrast, nothing in the cooperation clause dealt with the disclosure of documents created more than a decade before any suit was filed for which the insured sought indemnification.  Likewise, the court rejected the insurer's argument that the common interest doctrine applied, again because the documents had no bearing on the defense of the underlying litigation.

 

The dissent maintained that Waste Management controlled, arguing that the duty to cooperate underlying the Waste Management decision was not as narrow as suggested by the majority.  The dissent noted that the duty to cooperate was based on the broad language in the insurance contract, "the principles of fairness and good faith, and the common interest doctrine" and rendered the attorney client privilege inapplicable. The court noted that the insured had argued that it had complied with the policies' notice provisions, thereby affirmatively placing its knowledge at issue, so the clean room litigation risk analysis was a relevant and necessary source of information for the insurers.  The court also noted that in Waste Management the court had ruled that the "cooperation clause does obligate the insured to disclose all of the facts within its knowledge and otherwise to aid the insurer in its determination of coverage under the policy. The insurer is entitled … to gain as much knowledge and information as may aid in its investigation …. To hold otherwise effectively places the insurer at the mercy of the insured and severely handicaps it in contesting a claim." Motorola, 2017 IL App (1st) 161465, ¶69, citing to Waste Management, 144 Ill.2d at 204.

 

It is not known whether the insurers will appeal this decision to the Illinois Supreme Court. However, in the absence of an appeal, this decision means that insurers may not obtain attorney-client communications from their insureds that were not specifically relevant to the underlying claim for which coverage is being sought.

 

***Thank you, Bill, for the courtesy and privilege of allowing us to reprint your article.

 

John

John R. Ewell

[email protected]

 

War Sends Women to the Navy Yard:

 

The Buffalo Enquirer

Buffalo, New York

17 Nov 1917

 

WOMEN TO WORK

IN NAVY YARD

 

(By the International News Service)

 

Portsmouth, N.H., Nov. 17.—Women and girls are to be given employment in the electrical shop at Portsmouth navy yard.  This is the first time any mechanical department of the yard has been opened to women labor.

 

Peiper’s Prose:

 

After weeks of waiting, we’re happy to cheer the arrival of the Fourth Department’s most recent offering on “mixed use” reports.  In an unmistakable rebuke of policy holder’s arguments that recent decisions resulted in the loss of the attorney/client privilege, the Court ruled, unequivocally, that legal advice rendered by counsel is, as it always should have been, exempt from disclosure.  No matter when it was given.

 

This does not mean, however, that we can go back to abusing the attorney/client privilege as a way to sanitize a claims file.  Mixed use reports are still discoverable so long as they don’t contain legal advice or analysis.  Likewise, the material prepared in anticipation of litigation doctrine still does not apply to preclude production of pre-denial reports. 

 

In a departure from the privileges discussion, the Celani Court also ruled that discovery of reserves was not material and necessary to the prosecution of an action.  This is a major development, and potentially a landmark case in permitting a carrier to protect its most precious information.  

 

With the column this week, you’ll note that these concepts remain elusive to some practitioners.  In the NYAHSA decision (the first one), the Third Department does an excellent job of setting forth the requirements in establishing atty/client, atty work product or material prepared in anticipation of litigation.  Review it if you’re still not sure how the privileges attach, and to what they can be attached.

 

Finally, we also note that the First Department enforced (as has been the trend) a Public Safety Endorsement which resulted in a loss of coverage.  The PSE, which usually speaks to fire alarms or sprinklers, can void otherwise valid coverage as a result of an insured’s non-compliance.  The Illinois Union case is further example of Courts’ willingness to apply, as written, plainly worded coverage restrictions.

 

That’s it for this week. 

 

Oh, one more thing, November 17th is National Take a Hike Day.  Not a bad idea, with winter weather just around the corner. 

 

 

Steve

Steven E. Peiper

[email protected]

 

A Sextopus?

 

New York Herald

New York, New York

17 Nov 1917

 

FILM OCTOPUS WAS ONLY A SEXTOPUS

 

Williamson, Suing for Salary,

Tells How Rubber Devil-fish was Built

 

            That movie octopus has been gripping its tentacles around Judge Manton, a jury, a lot of lawyers, the complainant and defendants in the United States District Court for the post few days. It held the spotlight again yesterday when the suit of J. Ernest Williamson, octopus maker and deep-sea movie operator, against the Universal Film Company for a lot of salary was resumed.

 

            Young Mr. Williamson, who owns fluffy hair that even a movie matinee hero would be excused for envying, took the stand early and often.  He had decided, it sees, when engaged to go to the Bahamas and film the undersea pictures of Jules Vern’s “Twenty Thousand Leagues Under the Sea” that he knew where he could get a good practical ocean, but that he must first catch his octopus or something just as good. So he build an octopus, he said.

 

            It was largely a rubber ball octopus, testified Mr. Williamson, with a bust measurement of about thirty feet, or big enough to hold divers inside among its innards to work the tentacles. And the tentacles were made of the common or garden variety of garden hose, with springs along their inner length, so that the divers could make the tentacles wobble a bit. 

 

Hewitt’s Highlights: 

 

Dear Subscribers:

 

The weather is getting cold on Long Island, the leaves have half fallen off the trees, and Thanksgiving will soon arrive. We are thankful to all the readers of this newsletter, and I, particularly, am thankful for the readers of this column and those who respond from time to time.

 

In the serious injury world, we have a few cases for you readers this edition. On serious injury, defendant doctors who examine plaintiff and say they could have gone back to work will not trump plaintiff’s doctor who examined them right after the accident and told them not to return to work. Another case shows plaintiffs will have difficulty if their doctor finds degenerative injuries he does not explain and fails to do range of motion testing. On the liability front, we have a reminder from the courts that there can be more than one proximate cause, so that even a video of a bicyclist riding into the street without warning is not enough for summary judgment. There is an issue of fact whether the driver who hit the bicyclists used their senses such that they saw all there is to see.

 

Until next time,

 

Rob
Robert Hewitt

[email protected]

 

Fire Insurance for Fun and Profit:

 

The Buffalo Commercial

Buffalo, New York

17 Nov 1917

 

THE CATCH

 

            A widow had utilized the proceeds of the life insurance policies of her husband to invest in a new home.  She was discussing fire insurance on it with a broker, who explained it to her thus:

 

            “You see, it works like this.  Your house is worth $10,000.  Now the minute you have paid the first premium the company is responsible for the full value of the premises, even to the full extent of $10,000.  Your annual premium on this is $175.”

 

            The widow said with astonished eyes:  “You mean to say that if I pay $175 I will get from your company $10,000 for my house?”

 

            “Yes,” answered the broker, “provided, of course, it is burned sown.”

 

            “Oh,” replied the widow with a tone of blunt indignation, “I thought there was a catch in it!

 

Wilewicz’ Wide-World of Coverage:

 

Dear Readers,

 

The Second Circuit was quiet the last few weeks, and mercifully so, as I’ve again been crisscrossing this great State of New York on appearances and working on my frequent flyer status. Not only have I been racking up those airline miles, but I have had opportunity to admire the State’s famous change in foliage for the vantage point of 10,000+ feet. It’s a sight to behold.

 

Now, as the calendar ticks down to December, we again remind you to consider attending DRI’s upcoming Insurance Coverage and Practice Symposium. Info here: CLICK ME! It’s slated to take place December 7th and 8th at the Times Square Sheraton in Manhattan. As always, the event brings together world class programs, stellar CLE, and unparalleled coverage networking opportunities. Please drop us a line if you’re attending and we’ll track you down for dinner or coffee. New York is such a lovely place to be around the holiday season, and our contingent of coverage-aphiles would love to meet you.

 

Until next time!

 

Agnes

Agnes A. Wilewicz

[email protected]

 

 

Baseball and Buffalo – in 1917:

 

The Buffalo Enquirer

Buffalo, New York

17 Nov 1917

 

BAD NEWS FOR BUFFALO

 

ANNOUNCEMENT by President Barrow of the International League that if the matter were left to his decision he would recommend suspension of the league for at least a year.  That will not be received with excitement by the baseball fans of the city.  Rather will it cast a pall of gloom over them and all others who deprecate any action that places Buffalo at a disadvantage among the larger cities of the country. 

 

As a money-making proposition the International league did not prove successful in the 1917 season and those who have their money invested in the various clubs do not see bright prospects ahead.  Nobody can blame them for not wanting to take chances on a losing game, but the feeling of sadness over such a condition cannot be kept down.  If the officials of the league fall in line with President Barrow’s ideas Buffalo will be out of the baseball limelight for some time.  It is unfortunate, but the war has been responsible for many changes from normal conditions.

Editor’s note:  The International League was not suspended and the Buffalo Bisons came in third place, of eight teams, in 1918.  The Baltimore Orioles won the pennant and the Binghamton Bingoes came in second place.

 

Barnas on Bad Faith:

 

Hello again:

 

Here in Buffalo winter is fast approaching, the Bills have a new starting quarterback, and the Sabres are one of the worst teams in the NHL.  The more things change the more they stay the same.  It feels like we’re right on the edge of the holiday season right now.  By the time of our next issue Thanksgiving will have come and gone and we will be into December.  I love the holidays more than any time of year, but I can’t believe how fast 2017 has gone by.

 

Wehrenberg is a case with strange facts.  The insured rented out his home to a tenant, and the tenant then decided to perform major renovations.  The insured learned of this and gave the tenant the okay to keep going with the repairs.  When the tenant stopped paying rent, the insured decided to file a claim with his insurer for “vandalism” damage.  The Third Circuit concluded that damage was not covered under the policy because it was not sudden and accidental.  The claim for bad faith was also dismissed as the damage was not covered under the policy and the insurer properly investigated the claim.

 

Sanderson is another first party case out of the Northern District of New York.  After a water loss, the insured decided he disagreed with the value agreed upon through the appraisal process and commenced a lawsuit.  The insured’s claim for breach of the covenant of good faith and fair dealing was dismissed, as it was duplicative of his breach of contract action.  Similarly, the insured was not entitled to consequential damages because he could not point to any provision in the homeowner’s policy suggesting any special damages would be available in the event of a breach.  The General Business Law § 349 claim was also dismissed because no conduct affecting consumers at large was alleged.

 

Happy early Thanksgiving.

 

Signing off,

 

Brian

Brian D. Barnas

[email protected]

 

 

No Sunday Movies  -- 100 Years Ago:

Star-Gazette

Elmira, New York

17 Nov 1917

 

NO SUNDAY MOVIE

VERDICT UPHELD

           

The judgment of conviction rendered in police court in Schenectady and later affirmed by County Judge Daniel Naylon on appeal to the County Court, in which Vincent G. Bergstrom was convicted of running and operating a moving picture theatre—the old Majestic in Schenectady on Sunday, in violation of law, has been sustained by a decision just handed down in the Appellate Division of the Supreme Court, to which Bergstrom had carried the appeal.

 

When the proprietors of the various movie theatres in Schenectady were arrested about a year ago for operating their picture shows on Sunday, a test case was made of the Bergstrom arrest.  He was found guilty and fined $5, and the movie theatres were closed on Sunday. 

 

Altman’s Administrative (and Legislative) Agenda:  

 

Greetings, Dear Readers. 

 

I hope you all have wonderful Thanksgivings planned with your family and friends. Over the river and through the woods!  It’s a cloudy, dreary day in Melville. I’ve had about a dozen cups of coffee, and it’s only 8 am. 

 

Today, I bring you a new circular letter from New York’s Department of Financial Services, which offers guidance to insurers as to what benefits should be offered under accident and disability insurance policies.

 

Howard

Howard B. Altman

[email protected]

 

Morality in Question – a Century Ago:

 

Middletown Times-Press

Middletown, New York

17 Nov 2017

 

Morals of Men in Camp Defended

 

Washington, Nov. 17—Challenging Mrs. Grace Humiston to produce her proof, Raymond B. Fosdick, Director of the Commission on Training Camp Activities, had declared her charge that 600 girls near one camp are about to become mothers was “the grossest exaggeration.” 

 

“There are a few unfortunate girls near every camp and we can’t help it, under the circumstances,” said Mr. Fosdick.  “But this story of Mrs. Humiston’s is damnable because it gives the impression that our boys in uniform are wild animals when, in fact, they are behaving in splendid fashion.

 

“We have men watching every camp and they have never reported any such state of affairs.  I am writing Mrs. Humiston to come to Washington and submit her proofs.”

 

The New York woman lawyer also charged immorality to Camp Upton, which Mr. Fosdick emphatically denied.

 

“The men in camps are not all perfect, and it is sometimes difficult to drive from the neighborhood the clandestine and professional prostitutes,” Mr. Fosdick continued, “but the country needn’t get alarmed over Mrs. Humiston’s statements.  Daily reports from our men in the camps prove the American armies are clean.

 

Off the Mark:

 

Dear Readers,

 

Thanksgiving is almost here, I am looking forward to spending the day with family, eating too much, and watching football as the tryptophan kicks in.  Growing up, it was my family’s tradition to listen to Alice’s Restaurant on the ride to my aunt and uncle’s house in New Jersey.  I have continued that tradition with my own family.  Although the wife wasn’t too keen on listening to Arlo Guthrie for 18 minutes and 34 seconds, even with the four-part harmonies, she has come around to appreciating the tradition.  My kids look forward to it as much as I do.

 

This edition discusses a recent construction defect case from the Appellate Court of Illinois, Second District.  In Pekin Ins. Co. v. JB Architecture Grp., Inc., the Court affirmed the granting of summary judgment to the defendant finding that the plaintiff had a duty to defend the defendant in an underlying construction defects action because the relied on exclusion (fungi and bacteria) did not clearly apply to exclude otherwise covered property damage.

 

Happy Thanksgiving everyone!

 

Until next time …

 

Brian

Brian F. Mark
[email protected]

 

 

Highlights of this Week’s Issue, Attached:

 

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

 

  • Third Party Action, Seeking Coverage, is Severed from Personal Injury Action to Avoid Prejudice
  • Same Case, Different Issues.  Extended by Interesting Discussion of Contractual Indemnity and Primacy between Carriers Where Additional Insured Coverage is Involved.
  • Law Firm has Obligation to Investigate Insurance Coverage and Ensure that Client Notifies Other Appropriate Carriers
  • Undertaking a Defense, Settling a Case, Incurring Expense, all Without Carrier’s Consent, is a Breach of the Policy and Vitiates Coverage


HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW

Robert E.B. Hewitt III

[email protected]

 

  • Plaintiff Established an Issue of Fact Through Objective Evidence of Injury which Rebutted Defendant’s Expert’s Finding of Pre-Existing Degenerative Condition
  • Defendant’s Expert who Opined Plaintiff Could Have Returned to Work did not Examine Him Contemporaneously in the Time Period Relevant to the 90-180/Day Claim
  • Plaintiff’s Expert did not Test Range of Motion of Plaintiff and Admitted There Was Degeneration Such that Defendant’s Motion Was Granted
  • Driver Required to See All That Can Be Seen and Cannot Rely Solely on Video Showing Plaintiff Bicyclist Darted into the Street for Summary Judgment Purposes

 

TESSA’S TUTELAGE

Tessa R. Scott

[email protected]

 

  • Plaintiff Must Show that a Non-Physician had Dominion and Control Over the Funds of the Service Providers
  • Attorney Affidavits and Transcripts Were Sufficient to Show that Plaintiff did not Appear for Her Examination Under Oath

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

Property

 

  • Public Safety Endorsement Requiring Sprinklers Applies to Bar Coverage for Multi-Unit Fire Loss

 

Potpourri

 

  • Deferred Compensation on Earned Commissions cannot be Undone by Co-Producer was without Authority to Bind Plaintiff
  • No Privilege for Third-Party Report Prepared to Facilitate Discussion Between Parties, where Report is Mixed Use
  • Motion to Amend Does Not Require Affidavit of Merit

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]

  • Second Circuit quiet this week.

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

  • No Coverage Found under Homeowners Policy where Named Insured Did Not Reside at the Identified Location and It Was Not Used for Residential Purposes

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

  • Bad Tenant Does Not Equal Bad Faith
  • Claim for Breach of the Covenant of Good Faith and Fair Dealing May Not be Based upon the Same Factual Allegations as the Breach of Contract Claim

 

EWELL’S UNIVERSE
John R. Ewell

[email protected]

 

  • New York State Appellate Division Holds That Pre-Disclaimer Coverage Opinions and Related Claims Notes Are Protected From Disclosure by Attorney-Client Privilege
  • In Coverage Dispute, Illinois Appellate Court Holds that Insured Can Withhold Documents From Its Insurer As Attorney-Client Privileged When the Documents Were Created “Years Before Litigation”

 

ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

[email protected]

 

  • Guidance on Accident and Disability Policies

 

OFF THE MARK
Brian F. Mark
[email protected]

 

  • Appellate Court of Illinois Affirms Lower Court’s Finding of a Duty to Defend Where Construction Defect Allegations in Underlying Complaint were Ambiguous and did not Preclude any Possibility of Coverage

 

EARL’S PEARLS
Earl K. Cantwell
[email protected]

 

  • A Primer on Defective Materials Claims

 

Again, our best wishes for the holiday upcoming.

 

 

Dan

 

Dan D. Kohane
Hurwitz & Fine, P.C.

1300 Liberty Building
Buffalo, NY 14202    

Office: 716.849.8942

Cell:     716.445.2258
Fax:      716.855.0874

E-Mail:                        [email protected]
H&F Website:           www.hurwitzfine.com

LinkedIn:                   www.linkedin.com/in/kohane

Twitter:                       @kohane

                                    @hfcoverage

 

 

 

 

Hurwitz & Fine, P.C. is a full-service law firm
providing legal services throughout the State of New York


NEWSLETTER EDITOR
Dan D. Kohane
[email protected]

 

ASSOCIATE EDITOR

Agnes A. Wilewicz

[email protected]

 

ASSISTANT EDITOR

Jennifer A. Ehman

[email protected]

 

INSURANCE COVERAGE/EXTRA CONTRACTUAL LIABILITY TEAM
Dan D. Kohane, Chair
[email protected]

 

Steven E. Peiper, Co-Chair

[email protected]
 

Michael F. Perley

Jennifer A. Ehman

Agnieszka A. Wilewicz

Edward B. Flink

Patricia A. Fay

Brian D. Barnas

Howard B. Altman

Brian F. Mark

John R. Ewell

Diane F. Bosse

Joel R. Appelbaum

 

FIRE, FIRST-PARTY AND SUBROGATION TEAM
Steven E. Peiper, Team Leader
[email protected]

 

Michael F. Perley

Edward B. Flink

Brian D. Barnas

Howard B. Altman

James L. Maswick

 

NO-FAULT/UM/SUM TEAM
Jennifer A. Ehman, Team Leader
[email protected]
 

Patricia A. Fay

Tessa R. Scott

 

APPELLATE TEAM
Jody E. Briandi, Team Leader
[email protected]

 

Diane F. Bosse
 

Topical Index

Kohane’s Coverage Corner

Hewitt’s Highlights on Serious Injury

Tessa’s Tutelage
Peiper on Property and Potpourri

Wilewicz’s Wide World of Coverage

Jen’s Gems

Barnas on Bad Faith
Ewell’s Universe

Altman’s Administrative (and Legislative) Agenda
Off the Mark

Earl’s Pearls

 

KOHANE’S COVERAGE CORNER
Dan D. Kohane
[email protected]

 

11/15/17       Poalacin v. Mall Properties, Inc. (I)

Appellate Division, Second Department
Third Party Action, Seeking Coverage, is Severed from Personal Injury Action to Avoid Prejudice

Harleysville was sued for coverage, as a third-party defendant, in a personal injury action.  It moved to sever the third-party action from the main action so as not to have the issue of insurance before the jury as that would be prejudicial.  The lower court denied the motion to sever but the Second Department reversed. It is generally recognized that, even where common facts exist, it is prejudicial to insurers to have the issue of insurance coverage tried before the jury that considers the underlying liability claims.

 

11/15/17       Poalacin v. Mall Properties (II)
Appellate Division, Second Department

Same Case, Different Issues.  Extended by Interesting Discussion of Contractual Indemnity and Primacy between Carriers Where Additional Insured Coverage is Involved.
On November 26, 2011, the plaintiff, Poalacin was working at a retail property that was being refurbished. The property was owned and managed by Mall Properties, Inc. (“Mall”) and KMO-361 Realty Associates, LLC (“KMO-361”), respectively, and leased by the Gap, Inc. James Hunt Construction (“Hunt”) served as the general contractor for the project. James Hunt hired Weather Champions, Ltd. (“Weather”) was the HVAC contractor, Weather hired APCO, the plaintiff's employer, to insulate the HVAC duct work.

 

The plaintiff fell off a ladder and sued Mall Properties, Inc., KMO-361 Realty Associates, LLC, the Gap, Inc., Hunt, and Weather.  The complaint contained the usual Labor Law allegations. Mall, KMO-36, The Gap, Inc., and Hunt (the “Mall defendants”) asserted cross claims against Weather for contractual and common-law indemnification.

 

Weather commenced a third-party action against APCO, asserting causes of action to recover for contractual and common-law indemnification. It also asserted a breach of contract cause of action, alleging that APCO failed to procure insurance as required in a "Blanket Subcontractor Agreement."

The Mall defendants also commenced a third-party action against APCO. The Mall defendants alleged that they were entitled to common-law indemnification from APCO.

 

In addition, the Mall defendants commenced a third-party action against Harleysville Insurance which had issued an insurance policy to Weather. The Mall defendants sought a judgment declaring that Harleysville was required to "defend, indemnify and afford additional insured coverage to them" on a "primary" basis in this action.

 

As relevant here, the Mall defendants subsequently moved for summary judgment on their cross claims for contractual and common-law indemnification against Weather and on their third-party cause of action against APCO for common-law indemnification, and on their third-party complaint against Harleysville for a declaration in their favor.

 

Weather pushed down on APCO seeking summary judgment on its third-party cause of action against APCO for contractual indemnification. Weather Champions contended that APCO was required to indemnify it pursuant to the "Blanket Subcontractor Agreement."

 

Harleysville cross-moved for summary seeking a declaration that it was not required to defend, indemnify, or afford additional insured coverage to the Mall defendants on a primary basis in this action. Harleysville further argued that even if Hunt qualified as an additional insured, the policy of insurance that it issued was excess to a policy of insurance issued by Hunt's insurance carrier, the nonparty Netherlands Insurance Company (“Netherlands”).

 

There were also motions relative to the Labor Law claims by the plaintiff that are not relevant for the coverage and trade contract discussion.

 

Contractual Indemnification:

The right to contractual indemnification depends upon the specific language of the contract. Here, the Mall defendants' cross claim against Weather for contractual indemnification was based on a contract between Weather and Hunt, pursuant to which Weather agreed, to indemnify James Hunt if Weather or one of its subcontractors was negligent. Inasmuch as the Mall defendants failed to establish that Weather Champions or APCO was negligent as a matter of law in connection with the accident, the Mall defendants failed on their motions for summary judgment against Weather.

In order to establish their claim for common-law indemnification, the Mall defendants were required to prove not only that they were not negligent, but also that the proposed indemnitor, Weather, was responsible for negligence that contributed to the accident.  They failed to do so on the merits.

 

Additional Insured Coverage:

The Mall defendants contends that they are entitled to summary judgment declaring that Harleysville has a duty to defend and indemnify them in the plaintiff's action, on a primary basis, as additional insureds under a policy of insurance issued by Harleysville to Weather. Harleysville contends that any coverage afforded to the Mall defendants would be excess to coverage under a policy of insurance issued by Netherlands to Hunt.

 

The Harleysville policy provides that coverage under the additional insured endorsement shall be excess over any other available insurance unless the underlying written contract between Weather and Hunt requires such additional insured coverage to be primary. The relevant contract between Weather Champions and James Hunt does not specifically require Weather Champions to procure primary insurance covering Hunt as an additional insured.

 

The Netherlands policy issued to Hunt, in turn, provides primary coverage except that such coverage shall be excess over any other primary insurance available under an additional insured provision of another policy. Accordingly, the policy of insurance issued by Harleysville is excess to the policy of insurance issued by Netherlands.

 

Editor’s Interim Note:  Interesting analysis. The Harleysville policy says it will only be primary if required by contract.  The contract didn’t require primary.  The Netherlands’ policy says that if their named insureds, Hunt, is an additional insured under another policy (and it was with Harleysville) its policy will be excess.  It looks like the court found that since there wasn’t any other PRIMARY coverage for Hunt, only excess coverage, and therefore Hunt’s primary coverage under the Netherland’s policy was the sole primary coverage.

 

Harleysville has no obligation to defend the Mall defendants as a result.

However, as to indemnity, the additional insured endorsement of the Harleysville policy provides that an additional insured is covered only for damages caused by Weather or those acting on its behalf, to which the additional insured is entitled to be indemnified by Weather pursuant to the contract between Weather and Hunt.

 

The contract between Weather and Hunt provides that Weather shall indemnify certain enumerated entities and individuals for damages arising out of Weather Champions' work, provided that such damages were caused by the "negligent acts or omissions" of Weather or its subcontractors, or anyone employed by them.

 

Accordingly, since Harleysville failed to establish, as a matter of law, that the additional insured endorsement could not be triggered under the circumstances of this case or that it was otherwise inapplicable, the court erred in awarding summary judgment declaring that Harleysville had no duty to indemnify the Mall defendants. Since the Mall defendants failed to establish, as a matter of law, that the additional insured endorsement was triggered, the court properly denied that branch of their motion which was for summary judgment declaring that Harleysville has a duty to indemnify them.

Editor’s Final Note:  The purists will think about Pecker Iron Works v. Travelers, 99 NY2d 391 and the Second Department’s recent decision in Mecca Contracting v. Scottsdale Insurance, 140 AD3d 714 (2016).  Pardon the question, but when does Pecker win the day?

 

11/09/17       Eurotech Construction Corp. v. Fischetti & Pesce, LLP

Appellate Division, First Department

Law Firm has Obligation to Investigate Insurance Coverage and Ensure that Client Notifies Other Appropriate Carriers

The complaint alleged that the defendant law firm failed to ensure that the plaintiff gave notice to its excess carrier that the primary carrier’s limits were likely to be exhausted in connection with the underlying personal injury claim. A law firm may have an obligation to investigate insurance coverage. The law firm argued that it should not bear the burden in this case because its client had been advised by its third-party administrator to notify its excess carrier in the client had not done so.

 

The issue is not what client knew but whether its attorneys committed malpractice by not providing timely information obtained from the deposition testimony or bills of particular in the underlying action. Resolution of that issue depends on facts not yet developed.

 

The breach of fiduciary duty and breach of implied contract claims are premised on the same facts and seek the same relief as the legal malpractice claim, and were therefore correctly dismissed as duplicative.

 

11/08/17       Ralex Services, Inc. v. Southwest Marine & General Ins. Co.

Appellate Division, Second Department
Undertaking a Defense, Settling a Case, Incurring Expense, all Without Carrier’s Consent, is a Breach of the Policy and Vitiates Coverage

In August 2014, Ralex entered into stipulations and orders of settlement in an underlying action whereby it agreed to pay $2.2 million plus interest in exchange for a release of all potential civil claims and penalties. The following month, in September 2014, Ralex informed Southwest Marine & General Insurance Company (“Southwest”), of the underlying action and requested coverage/indemnification under an insurance policy issued by Southwest. The following month, Southwest disclaimed coverage and any obligation to defend or indemnify Ralex in connection with the underlying action as well as the resulting settlements.

 

Ralex commenced this declaratory judgment action seeking a judgment declaring that Southwest owed it defense and indemnity under the policy. Southwest filed a pre-action motion to dismiss which was granted, the motion based on documentary evidence.

 

Under the policy, an insured is not permitted to “voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without [Southwest's] consent." Contrary to Ralex's contention, this provision is not ambiguous.

 

An insurer's right to consent to any settlement is a condition precedent to coverage.  Here the lower court granted Southwest’s motion based on the documentary evidence showing that Ralex undertook its own defense in the underlying action, agreed to settle the underlying action, and incurred defense costs without first obtaining Southwest's consent. By doing so, Ralex breached the insurance contract and is not entitled to coverage.


HEWITT’s HIGHLIGHTS ON SERIOUS INJURY UNDER NO-FAULT LAW

Robert E.B. Hewitt III

[email protected]

 

11/16/17       Paulling v. City Car and Limousine Servs. Inc.

Appellate Division, First Department

Plaintiff Established an Issue of Fact Through Objective Evidence of Injury which Rebutted Defendant’s Expert’s Finding of Pre-Existing Degenerative Condition

The Appellate Division held that defendants met their burden on summary judgment by tendering the affirmed reports of their neurologist, who found normal range of motion upon recent examination, of their radiologist, who concluded that plaintiff's MRI films showed preexisting degenerative conditions unrelated to the accident, and their emergency medicine specialist, who found that plaintiff's post-accident hospital records were inconsistent with a traumatically-induced injury. In opposition, however, plaintiff raised a triable issue of fact as to whether he sustained an injury involving a "permanent consequential" or "significant" limitation of use of his lumbar spine through his treating physician, who found limitations in spinal range of motion on initial and recent examination. Objective evidence of injury was confirmed by plaintiff's radiologist. Plaintiff's physician sufficiently addressed defendants' expert's findings of degeneration by opining that the injuries to the otherwise asymptomatic plaintiff were consistent with and causally related to the accident.

 

Defendants waived any argument regarding an alleged gap in treatment by waiting until their reply to raise the argument. In any event, the evidence shows that plaintiff received treatment during the alleged "gap," as evidenced by, inter alia, his Workers' Compensation records, with examinations affirmed by his treating physician.

 

With respect to plaintiff's 90/180-day claim, although defendants' physicians did not examine plaintiff during the relevant period, defendants met their prima facie burden through the reports of their radiologist, whose opinion of preexisting degeneration was based on review of plaintiff's post-accident MRI films, and of their emergency room physician, who based his opinion on review of medical records that were created the day of the accident. Thus, it is of no moment that the actual reports were rendered later.  In opposition to defendants' prima facie showing, plaintiff raised an issue of fact through his physician's affirmed workers' compensation reports finding a 100% impairment during the relevant period and the physician's opinion that plaintiff's impairment was causally related to the accident.

 

11/09/17       Jackson v. City of Buffalo

Appellate Division, Fourth Department

Defendant’s Expert who Opined Plaintiff Could Have Returned to Work did not Examine Him Contemporaneously in the Time Period Relevant to the 90-180/Day Claim

Plaintiff commenced this action seeking to recover damages for injuries that he sustained while he was a passenger in a vehicle driven by his wife, third-party defendant. Defendant Jason Austin was operating a dump truck with an attached trailer, both of which were owned by Defendant City of Buffalo. Austin and third-party defendant were traveling in the same direction on Eggert Road, when Austin turned right and collided with the vehicle driven by third-party defendant, which was to his right.

 

The Appellate Division held that the Supreme Court properly denied defendants' motion for summary judgment dismissing the complaint. Defendants failed to meet their initial burden of establishing that third-party defendant was negligent as a matter of law and that her negligence was the sole proximate cause of the accident. Although defendants submitted the expert affidavit of an engineer who opined that there is only one lane of travel in each direction on the portion of Eggert Road where the accident occurred, defendants also submitted the deposition testimony of plaintiff, third-party defendant, and Austin, each of whom testified that two cars can fit side-by-side each way on that portion of road, "thereby functionally creating two lanes in the same direction from a single lane.” Moreover, plaintiff further testified at his deposition that the vehicle in which he was riding was positioned on the right side of Austin's dump truck, and that Austin did not activate his turn signal before turning. The Appellate Division thus concluded that there are issues of fact whether the road has one or two lanes of travel in each direction and whether Austin made an improper right turn from the left lane.

 

As to serious injury, defendants also failed to meet their initial burden of establishing that plaintiff did not sustain a serious injury under the 90/180-day category of Insurance Law § 5102 (d). To qualify as serious injury under that category, there must be objective evidence of a medically determined injury or impairment of a non-permanent nature as well as evidence that plaintiff's activities were curtailed to a great extent. In support of their motion, defendants submitted the transcript of plaintiff's General Municipal Law § 50-h hearing, which occurred 176 days after the accident. Plaintiff testified at the hearing that he went to the hospital the day after the accident that he was then forbidden by his physician from returning to work because he had two herniated discs and a torn disc in his back, and that he had not yet returned to work after the accident. Although defendants' expert physician opined in his affirmed report that plaintiff could continue working, that opinion was based upon an examination of plaintiff that occurred over four years after the accident, and thus the physician  did not examine plaintiff during the relevant statutory period and did not address plaintiff's condition during the relevant period

 

With respect to the permanent consequential limitation of use and significant limitation of use categories of serious injury, even assuming, arguendo, that defendants met their initial burden of establishing their entitlement to judgment as a matter of law, the Appellate Division concluded that plaintiff raised an issue of fact by submitting the expert opinion of his treating chiropractor, who relied upon objective proof of plaintiff's injury, provided quantifications of plaintiff's loss of range of motion along with qualitative assessments of plaintiff's condition, and concluded that plaintiff's injury was significant, permanent, and causally related to the accident.

 

11/09/17       Lucas v. State of New York

Appellate Division, Second Department

Plaintiff’s Expert did not Test Range of Motion of Plaintiff and Admitted There Was Degeneration Such that Defendant’s Motion Was Granted

Claimant was allegedly was injured when the bus he was driving was struck in the rear by a dump truck owned by the defendant, the State of New York. Thereafter, the claimant commenced this claim against the defendant to recover damages for personal injuries, and the Court of Claims granted his motion for summary judgment on the issue of liability.

 

At a trial on the issue of damages, the claimant's treating neurosurgeon testified that an MRI of the claimant's lumbar spine showed degenerative disc disease. The neurosurgeon also testified that the claimant experienced lower back pain that began after the accident. He noted that the source of the claimant's pain was unknown, and that he therefore could not recommend any type of spinal surgery to reduce the pain. According to the claimant's neurosurgeon, the claimant's pain prevented him from doing his job as a bus driver. On cross-examination, the neurosurgeon testified that he did not recall ever testing the claimant's range of motion.

 

The defendant's expert neurosurgeon testified that his neurological examination of the claimant revealed normal findings regarding strength and sensation. He also testified that he reviewed an MRI film of the claimant's lumbar spine taken about one month after the accident and did not see "any signs of any significant bulging herniation, protrusion, or other disc pathology other than . . . some minor disc dehydration." The defendant's expert neurosurgeon concluded that the claimant did not have any traumatically induced neurologic dysfunction or neurologic disability. He added that the claimant "could perform his work activities." The defendant also presented the testimony of an investigator for the New York State Attorney General's Office, who testified that he followed the claimant shortly before the trial and observed him shoveling snow, which required frequent bending, for about 20 minutes.

 

The Appellate Division found that the determination of the Court of Claims that the claimant failed to establish that he sustained a serious injury to the lumbar region of his spine under either the permanent consequential limitation of use or significant limitation of use categories of Insurance Law § 5102(d). Moreover, the court's determination that the claimant did not sustain a serious injury under the 90/180-day category of Insurance Law § 5102(d) was warranted by the facts 

 

11/08/17       Ellis v. Vazquez

Appellate Division, Second Department

Driver Required to See All That Can Be Seen and Cannot Rely Solely on Video Showing Plaintiff Bicyclist Darted into the Street for Summary Judgment Purposes

On May 13, 2013, the plaintiff, a bicyclist, and the defendant, a motorist, were involved in a collision on Avenue W near its intersection with East 27th Street, in Brooklyn. 

 

The defendants moved, inter alia, for summary judgment dismissing the complaint on the grounds that they were not liable for the plaintiff's injuries because the plaintiff's conduct was the sole proximate cause of the accident, and that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d). In support, they submitted a surveillance video of the accident, which depicted the plaintiff darting out to the middle of a road into oncoming traffic from both directions. The defendants also submitted the deposition testimony of Vazquez, who stated that she took her eyes off the plaintiff after she saw him standing next to his bicycle, and that she did not see him again until the collision. The plaintiff submitted no evidence in opposition to the motion.

 

The Supreme Court properly concluded that the defendants were not entitled to summary judgment dismissing the complaint on the ground that they were not liable for the plaintiff's injuries. A driver is bound to see what is there to be seen with the proper use of his or her senses, and there can be more than one proximate cause of an accident. In order for a defendant driver to establish entitlement to summary judgment on the issue of liability in a motor vehicle collision case, the driver must demonstrate, prima facie, inter alia, that he or she kept the proper lookout, or that his or her alleged negligence, if any, did not contribute to the accident. Here, although the Appellate Division found that although the surveillance video demonstrated that the plaintiff was negligent in darting out on his bicycle into oncoming traffic, the defendants failed to establish, prima facie, that the defendant driver saw what was to be seen, and that she exercised reasonable care in attempting to avoid the collision.

 

The Supreme Court also properly concluded that the defendants were not entitled to summary judgment dismissing the complaint on the ground that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d). The defendants failed to meet their prima facie burden of showing that the plaintiff did not sustain a serious injury within the meaning of Insurance Law § 5102(d) as a result of the subject accident. The papers submitted by the defendants failed to adequately address the plaintiff's claim, set forth in the bill of particulars, that he sustained a serious injury under the 90/180-day category of Insurance Law § 5102(d). No facts are given as to this claim.

 

TESSA’S TUTELAGE

Tessa R. Scott

[email protected]

 

11/15/17       Nationwide Affinity Ins. v. Acuhealth Acupuncture

Appellate Division, Second Department

Plaintiff Must Show that a Non-Physician had Dominion and Control Over the Funds of the Service Providers

The plaintiffs, insurance companies, commenced this action against the defendants, five professional medical service corporations. The complaint sought a judgment declaring that the plaintiffs are not obligated to pay any past, pending, or future claims for no-fault benefits submitted to them by the defendants on the basis that the defendants were fraudulently incorporated in the names of licensed medical professionals, while in fact they were owned, operated, and controlled by Andrey Anikeyev, a nonphysician. The plaintiffs moved for summary judgment on the complaint. The Supreme Court granted the motion, and the defendants appeal.

"Insurance Law requires no-fault carriers to reimburse patients  for basic economic loss, however, a provider of health care services is not eligible for reimbursement if it fails to meet New York State licensing requirement necessary to perform such service in New York.  One of those requirements is that professional service corporations be owned and controlled only by licensed professionals"

If a service provider is not owned or controlled by a licensed professional, an insurance carrier may withhold payment for medical services on the basis that the service provider has been "fraudulently incorporated" to allow nonphysicians to share in its ownership and control.

 

Here, the plaintiffs failed to demonstrate that the defendants were fraudulently incorporated in this manner. In support of their motion, the plaintiffs submitted nothing more than Anikeyev's plea of guilty to a federal court Information that charged him generally with mail and health care fraud, and charged that substantial funds held in the defendants' accounts were subject to forfeiture.

 

The Information does not describe the manner in which the fraud was committed or how the funds came to be held in the defendants' accounts. Thus, this evidence did not demonstrate that Anikeyev exercised dominion and control over the defendants and their assets and shared the risks, expenses, and interest in their profits and losses, or that he had a significant role in the guidance, management, and direction of their business.

 

Even assuming that the presence of the forfeited funds in the defendants' bank accounts demonstrated some level of control by Anikeyev over the bank accounts, such control could not, on its own, support a finding that he owned and controlled the defendants.

 

11/03/17       TAM Med. Supply Corp. v. 21st Century Ins. Co

Appellate Term, Second Department

Attorney Affidavits and Transcripts Were Sufficient to Show that Plaintiff did not Appear for Her Examination Under Oath

Plaintiff appeals from an order granting defendant's motion for summary judgment dismissing the complaint on the ground that plaintiff had failed to appear for duly scheduled examinations under oath (EUOs).

 

Contrary to plaintiff's contentions, the affirmations by the attorneys who were scheduled to conduct the EUOs, and certified transcripts reflecting plaintiff's failure to appear for the EUOs, established that plaintiff's assignor had failed to appear at either of the EUOs.

 

PEIPER ON PROPERTY (and POTPOURRI)

Steven E. Peiper

[email protected]

 

Property

 

11/14/17       Illinois Union Ins. Co. v. Grandview Palace Condo. Assoc.

Appellate Division, First Department

Public Safety Endorsement Requiring Sprinklers Applies to Bar Coverage for Multi-Unit Fire Loss

Defendant sustained a fire loss, and sought coverage under the policy issued by Illinois Union.  Illinois Union, however, denied the claim on the basis of a Protective Safeguard Endorsement (PSE) which required that the insured property maintain an automatic sprinkler system. Here, it was uncontroverted that the multibuilding complex had buildings with limited sprinkler systems and other units that had no protective sprinkler systems.  Accordingly, the PSE was violated and coverage lost as a result.

 

In reaching this conclusion, the Court rejected Gradview’s argument that the policy covered a series of locations.  Accordingly, Grandview argued that only those locations without sprinkler service should have been excluded from coverage.  The Court noted that there was no ambiguity in the endorsement, and that it clearly applied to preclude coverage for all loss arising out of the fire.

 

In addition, the Court also granted Great American’s application for summary judgment.  Great American, as excess insurer, incorporated PSE-type language into its policy when Illinois Union assumed the risk.  The Great American policy was issued, initially, to be excess over a policy issued by Aspen. 

 

When Aspen cancelled its policy, Illinois Union agreed to insure Grandview.  Grandview argued that Great American, in changing the terms of the policy, materially changed the coverage without providing consideration to Grandview.  Whereas here Great American could have simply cancelled the coverage, the Court ruled that the simple fact coverage was kept in place is evidence of consideration.

 

Potpourri

 

11/09/17       Cook v. Massachusetts Life Ins. Co.

Appellate Division, Fourth Department

Deferred Compensation on Earned Commissions cannot be Undone by Co-Producer was without Authority to Bind Plaintiff

Plaintiff commenced this action seeking recovery of commissions which were to be paid by defendant under a deferred compensation schedule.  Essentially, in exchange for sale of approximately $50 million in premium of life insurance policies in 1997, Defendant was to make payments of commissions over the next 20 years. 

 

At the time of the agreement, plaintiff was assisted by a co-producer.  In 1998, the co-producer entered into a separate agreement with defendant wherein plaintiff would only receive payment if no policies in the larger group of policies sold were surrendered or exchanged.  When certain policies were surrendered in 2008, Defendant reduced commissions for a period of five years (through 2012), and cancelled remaining payments which would have been collected through 2017.

 

Plaintiff established that he was entitled to the 20 year deferred compensation schedule, and further established that he did not sign an agreement similar to the one his co-producer had signed.  Nevertheless, Mass. Life argued that the co-producer acted as plaintiff’s agent and accordingly bound him to the 1998 changes.

 

In affirming the trial court’s granting of plaintiff’s motion, the Appellate Division noted there was no evidence that the co-producer had actual authority to act on behalf of plaintiff. Rather, the agreement between the two men established the exact opposite.  In addition, Mass. Life could not point to any statement or document which indicated the co-producer had implied authority to act on behalf of plaintiff. 

 

11/09/17       NYASHA Servs. Inc. v. People Care Inc.

Appellate Division, Third Department

No Privilege for Third-Party Report Prepared to Facilitate Discussion Between Parties, where Report is Mixed Use

Plaintiff is a self-insured trust which provided workers’ compensation benefits to, among others, People Care.  When People Care left the trust, it thereafter refused to contribute to adjustment bills related to ongoing open claims.  Plaintiff sued People Care, who, in turn commenced a third-party action against the trust’s administrator, Cool.

 

The instant dispute revolves around discovery of a report prepared by a consultant who was retained to review and analyze Cool’s management and administration of the claims presented to the trust.  People Care’s counsel commissioned the report of the consultant, Towers Perrin, and People also sought shield it from disclosure in the instant action.  In support of its position, People argued that the material was exempt from disclosure by operation of the attorney/client privilege, as well as the doctrines of attorney work product and material prepared in anticipation of litigation. 

 

The Court ruled that the attorney/client privilege was not applicable because the document at issue here was not made for the purpose of providing legal advice. In order to protect a document under the attorney/client privilege, the movant must demonstrate that the communication was in the course of a professional relationship, was “predominately of a legal character,” and the communication was confidential and protected from waiver.


The document at issue here was a report critiquing Cool’s administrative procedures and reserve practices.  Apparently, communications were revealed that established the work performed by the consultant was to help “facilitate an intelligent conversation with Cool’s claims department.”  As such, the Court ruled that the document was not predominately legal in nature, but rather was created for a “typical business purpose.”  With no legal analysis, advice or “discussion of legal issues,” the Court ruled that the document was not entitled to enjoy attorney/client protections.

 

The Court also rejected the claimed application of the attorney work product doctrine.  That privilege is to be “narrowly applied to materials prepared by an attorney, acting as an attorney, which contain his or her analysis and trial strategy.”  Clearly, materials prepared by a third-party consultant do not fall within the scope of the protection. 

 

Finally, the Court rejected People Care’s attempt to exempt disclosure by operation of the material prepared in anticipation of litigation doctrine.  The Appellate Division noted that mixed or multipurpose reports are “not free from disclosure.”  While it was certainly possible that litigation between Cool, the trust and People Care would occur, it was also noted that counsel for People Care suggested the investigation was to “facilitate an intelligent conversation.”  Because the report was commissioned for a business purpose, if not principally for a business purpose, the material prepared in anticipation of litigation doctrine was inapplicable. 

 

Nevertheless, documents which reflected counsel’s legal opinion relative to the report and People Care’s potential liability are privileged and, thus, exempt from disclosure. 

 

11/09/17       NYASHA Servs. Inc. v. People Care Inc.

Appellate Division, Third Department

Motion to Amend Does Not Require Affidavit of Merit

As noted above, plaintiff is a self-insured trust which provided workers’ compensation benefits to, among others, People Care.  When People Care left the trust, it thereafter refused to contribute to adjustment bills related to ongoing open claims. 

 

This appeal addressed plaintiff’s attempts to amend its Complaint to add, as party plaintiffs, individual trustees.  Defendant opposed the application on the basis that the insured failed to present a “sufficient evidentiary showing to support the proposed claim.” 

 

In permitting the amendment, however, the Appellate Division first noted the long standing rule that leave to amend should be freely given.  While the Court had previously required an “evidentiary showing that the amendment has merit,” it departed from its previous precedent in this case.  In adopting the standard employed by the First, Second and Fourth Departments, respectively, the Third Department announced that a party is no longer required to establish the proposed merits of its claim when seeking to amend a pleading.  Thus, so long as the amendment does not result in prejudice or surprise as a result of delay, the application should be granted.  Parties opposing an amendment are free to argue that the movant’s papers are palpably insufficient or devoid of merit.  In those circumstances, however, the burden rests on the party opposing the amendment. 

 

WILEWICZ’S WIDE WORLD OF COVERAGE

Agnes A. Wilewicz

[email protected]
 

Second Circuit quiet this week.

 

JEN’S GEMS

Jennifer A. Ehman

[email protected]

 

11/01/17       Adirondack Ins. Exchange v. O’Hathairne Brothers, Inc.

Supreme Court, County of Putnam

Hon. Paul I. Marx, J.S.C.

No Coverage Found under Homeowners Policy where Named Insured Did Not Reside at the Identified Location and It Was Not Used for Residential Purposes

On February 14, 2013, Ian Washam sustained injury when he slipped and fell on a sidewalk located on property in Bronx, New York.  Washam and his wife eventually commenced a lawsuit against O’Hathairne Brothers, Inc. (“OBI”) and Michael, Brian and Gerard Harney.  The City of New York was also sued.  In the tort action, the court determined, in conjunction with a motion to dismiss filed by the City that the subject property was not owned by any of the Harneys, but instead it had been conveyed to OBI prior to the date of loss.  It also determined that the premises was not “a one-,two- or three-family residential real property” that was owner occupied or exclusively used for residential purposes. 

 

Prior to the loss, Adirondack had issued a homeowners policy to Michael Harney.  Brian and Gerard Harney were identified as additional insureds on that policy.  Adirondack ultimately disclaimed coverage on the basis that OBI was not a named insured or additional insured on the subject policy and the premises was not an “insured location” because it was not a residence premises.  Moreover, with regard to the Harneys, the premises did not qualify as an insured location because none of them lived there. 

 

This declaratory judgment action was then commenced.  Prior to motion practice, the Harneys entered into a stipulation with Adirondack whereby they acknowledged the lack of coverage.  However, the Washams refused to stipulate to no coverage, and opposed Adirondack’s dispositive motion.

 

The Washams contended that a disclaimer was inappropriate because Adirondack had improperly issued a homeowners policy for the subject premises even though the Harneys no longer owned the premises or resided there.  In other words, the carrier was negligent in issuing the policy.    The Washams further contended that Adirondack had somehow made a mistake by not changing the identity of the insured on the policy.  In reply, Adirondack submitted that there was no evidence of an innocent mistake by the applicant who had misidentified the insured, nor was there any evidence of a mutual mistake.

 

Ultimately, the court rejected the arguments that Adirondack was negligent in issuing the policy and that there was a mistake as to the insured on the policy. 

 

The Court refused to create coverage under the policy where none existed based upon the doctrines of waiver or estoppel.

Editor’s Note:  Attalawyer Brian Barnas!

 

BARNAS ON BAD FAITH

Brian D. Barnas

[email protected]

 

11/15/17       Wehrenberg v. Metropolitan Property & Casualty Co.

United States Court of Appeals, Third Circuit

Bad Tenant Does Not Equal Bad Faith

Plaintiff’s home was insured by Metro.  Plaintiff leased the home to Hyman for five years.  The lease provided that Hyman could not make changes to the property, such as painting or remodeling, without Plaintiff’s written permission.  Despite this, Hyman hired a structural engineer and demolished the house.  When Plaintiff learned of this in June 2012, Hyman told Plaintiff that the home had major structural problems that he was fixing.  Plaintiff did not file a claim at this time.  Instead, he allowed Hyman to finish the work. 

 

When Hyman stopped paying rent, Plaintiff filed a claim on February 28, 2013, more than eight months later, asserting that the home had been vandalized.  Metro denied coverage after investigation because (1) the damage was not “sudden and accidental” and (2) the damage constituted an incomplete renovation.

 

Plaintiff filed a lawsuit against Metro for breach of contract and bad faith.  The breach of contract claim was dismissed because the damage was not sudden and accidental.  The damage happened over a long period of time and could not be considered abrupt.  In addition, Plaintiff had authorized Hyman to consider the work when he learned it was happening.

 

The bad faith claim was also dismissed.  Plaintiff’s breach of contract claim was without merit, and the evidence established that Metro properly investigated the claim before determining it was not covered under the policy.

 

11/07/17       Sanderson v. First Liberty Insurance Corporation

United States District Court, Northern District of New York

Claim for Breach of the Covenant of Good Faith and Fair Dealing May Not be Based upon the Same Factual Allegations as the Breach of Contract Claim

Sanderson purchased a homeowner’s policy from First Liberty to cover his home in Plattsburgh, New York.  On January 7, 2014, Sanderson discovered water and mold damage and notified First Liberty.  After the parties disagreed on the value of the claim, First Liberty invoked the appraisal process.  Eventually, First Liberty sent Sanderson a net payment of $89,633.96 to settle his claim based upon the appraisal award.  Sanderson refused and filed suit.  Sanderson’s complaint included caused of action for breach of the implied covenant of good faith and fair dealing, breach of contract, and violation of New York General Business Law § 349.

 

Sanderson’s bad faith claim was dismissed.  The complaint contained no factual allegations distinct from the factual pattern underlying the breach of contract cause of action.  The § 349 claim was also dismissed.  There was no allegation by Sanderson that his dispute with First Liberty was anything more than a private contractual dispute.  As such, there was no consumer impact as necessary to state a claim pursuant to § 349.

 

Sanderson’s demand for consequential damages was also dismissed.  He could not point to any provision in the homeowner’s policy suggesting any special damages would be available in the event of a breach.  Sanderson’s demand for attorneys’ fees was also dismissed based upon the well-established rule that an insured may not recover the expenses incurred in bringing an affirmative action against an insurer to settle its rights under the policy.

 

EWELL’S UNIVERSE
John R. Ewell

[email protected]

 

11/09/17       Celani v. Allstate Indemnity Company et al.

New York Appellate Division, Fourth Department

New York State Appellate Division Holds That Pre-Disclaimer Coverage Opinions and Related Claims Notes Are Protected From Disclosure by Attorney-Client Privilege

Plaintiff, individually and on behalf of her daughter (“infant”), commenced this action seeking damages for injuries sustained by the infant in July 2010, when she was injured as a result of being accidentally shot with a gun that was owned by her father, Louis Territo (“father”). Plaintiff previously filed a claim on the infant’s behalf with defendant, Allstate Indemnity Company pursuant to a homeowner’s insurance policy issued to the father. Allstate disclaimed coverage on the ground that the policy excluded coverage for “bodily injury” to an “insured person,” and that the infant was an “insured person” because she was a relative of the policyholder, her father, and a “resident” of his household. Plaintiff alleged in the amended complaint that the infant’s injuries were caused by the father’s negligence and, pursuant to the terms of the insurance policy, defendant had agreed to indemnify the father for bodily injury.

 

In the course of the litigation, plaintiff moved to compel disclosure of Allstate’s entire claim file, including a legal opinion prepared by outside counsel and a claim investigation manual prepared by Allstate’s employees. Allstate cross-moved for a protective order preventing disclosure of, among other things, pre-disclaimer claim notes containing statements made by the father, the legal opinion of outside counsel and pre-disclaimer claim notes related thereto, pre-disclaimer claim notes containing information about defendant’s reserves, and the claim investigation manual. The trial court granted plaintiff’s motion to compel in its entirety, and denied defendant’s cross motion.

 

The Appellate Division, Fourth Department held that the trial court abused its discretion by granting that part of plaintiff’s motion seeking disclosure of the legal opinion of outside counsel and related claim notes pre-disclaimer and denying that part of defendant’s cross motion seeking a protective order with respect to those items, and we therefore modify the order accordingly.

 

The Appellate Division held that:

 

Although reports prepared in the regular course of business are discoverable (see Lalka v ACA Ins. Co., 128 AD3d 1508, 1508-1509 [4th Dept 2015]), documents prepared by an attorney that are “primarily and predominantly of a legal character,” and made to furnish legal services, are absolutely privileged and not discoverable, regardless of whether there was pending litigation at the time they were prepared.

(Citing Spectrum Sys. Intl. Corp. v Chem. Bank, 78 NY2d 371, 379 [1991]; VGFC Realty II, LLC v D’Angelo, 114 AD3d 765, 766 [2d Dept 2014]).

 

Therefore, the Appellate Division concluded the legal opinion and related claim notes are absolutely privileged, and that a protective order should have been granted to prevent their disclosure pursuant to the attorney-client privilege.

 

The Appellate Division also clearly ruled on the discoverability of reserve information. The Court held that an insurer’s reserve information is not subject to disclosure because reserve information is not “material and necessary” (citing to CPLR 3101[a]).

 

Finally, the Court held that the trial court abused its discretion by ordering disclosure of the insurer’s claims manual because it did not review the manual in camera. As the moving party, plaintiff had the burden of demonstrating that “the method of discovery sought will result in the disclosure of relevant evidence or is reasonably calculated to lead to the discovery of information bearing on the claims” The Allstate employee who made the ultimate decision to disclaim testified that the manual did not contain a definition of “resident.” Therefore, the Appellate Division held that the trial court should have reviewed the manual in camera to determine whether it contained information material and relevant to the issues to be decided in the action.

 

The Appellate Division unanimously modified the trial court order by denying those parts of the motion seeking to compel disclosure and granting those parts of the cross motion seeking a protective order with respect to the legal opinion of the outside counsel of Allstate and the pre-disclaimer claim notes related to it, to the claim notes containing Allstate’s reserve information, and by denying that part of the motion seeking to compel disclosure of the claim investigation manual.

 

08/04/17       Motorola Solutions Inc. v. Zurich Ins. Co. et al.

Appellate Court of Illinois

In Coverage Dispute, Illinois Appellate Court Holds that Insured Can Withhold Documents From Its Insurer As Attorney-Client Privileged When the Documents Were Created “Years Before Litigation”

Motorola filed a complaint for declaratory judgment and breach of contract against Zurich Insurance Company, among others. Motorola sought for the insurer to provide a defense against four underlying personal injury actions. The underlying actions alleged that Motorola was liable for injuries that children of former employees and contractors sustained as a result of exposure to various chemicals in “clean rooms” in Motorola’s semiconductor manufacturing facilities.

 

The insurer first received notice in 2007 that various individuals were considering suing Motorola for birth defects related to Motorola’s clean room operations. However, it appeared to the insurer that Motorola was aware of the underlying facts decades earlier.

 

During discovery, a dispute arose whether certain documents were subject to discovery. Motorola became aware in the 1990s that one of their competitors, a semiconductor manufacturer, had been sued for claims of birth defects in children whose parents worked in their “clean rooms.” As a result of Motorola created a Clean Room Safety Program, which resulted in various documents being prepared by, or at the direction of, outside counsel. Motorola withheld these documents asserting attorney-client privilege. 

 

Motorola also withheld various SEC filings concerning the sale of its semiconductor manufacturing business in 2003. In the course of that sale, Motorola was required to file certain documents with SEC which disclosed “significant risk facts currently known and unique to” its manufacturing business. In that disclosure, Motorola stated:

 

In the last few years, there has been increased media scrutiny and associated reports focusing on a potential link between working in semiconductor manufacturing clean room environments and certain illnesses, primarily different types of cancers…

 

Because we utilize these clean rooms, we may become subject to liability claims.

 

Motorola declined to produce those documents as well.

 

The insurer contended that the withheld documents were material evidence showing that Motorola had been aware of the facts underlying the clean room actions since at least 1996 and that the insurer intended to rely upon this evidence to support its late notice defense. The insurer argued that under the Illinois Supreme Court case of Waste Management Inc. v. International Surplus Lines Ins. Co., 144 Ill. 2d 178, 579 N.E.2d 322 (1991), the attorney-client privilege did not apply to shield production of such documents.  After the trial court ordered discovery of the disputed documents, an appeal was taken.

 

Motorola argued that the trial court erred in ordering it to produce the documents. After an in-depth discussion of the Waste Management case, the court distinguished Waste Management on the facts, stating:

 

Waste Management involved a factual scenario in which the insurers were seeking documents from the litigation for which the insureds were seeking indemnification. By contrast, in the case at bar, [the insurer] ha[s] not sought the files from the litigation in the underlying clean room cases; instead, [the insurer] [is] seeking files that were created years prior to any litigation.

 

The Court focused upon the cooperation clause of the insurance policy. The cooperation clause required plaintiff to “cooperate with the company and, upon the company’s request, assist in making settlements, in the conduct of suits and in enforcing any right of contribution or indemnity against any person or organization who may be liable to the insured …” However, the Court found that the duty to cooperate “is not boundless,” and held that an insured’s duty “must remain tied to the language of the cooperation clause itself.” The Court stated that the insurer did not adequately explain how the documents sought would assist in the defense of lawsuits against the insured.

 

Moreover, the Court found that the common interest was inapplicable. The Court explained that, in its view, there was no “underlying litigation” from which the insurer sought disclosure. The Court stated that the insurer sought “document prepared years before the first lawsuit was filed” and reasoned that the common interest did not apply because there was no common interest to defeat any claims against the insured at the time the documents were created. The Court held that the attorney-client privilege was available to the insured to shield any appropriate documents from disclosure and recommended that that trial court review the documents in camera.

 

Going forward, insurers in Illinois will face great difficulty obtaining privileged documents that are not sufficiently tied to the defense of claims against the insured. In other words, in insurance coverage litigation in Illinois, the common interest exception to attorney-client privilege will only apply when the documents are useful to combat the claims against the insured. Documents that were prepared by the insured significantly earlier by counsel, or under direction of counsel, will be subject to attorney-client privilege.

 

* The above summary was prepared by John Ewell. It reflects my impressions alone. It does not reflect the thoughts, opinions, impressions or viewpoints of William McVisk or Johnson & Bell. Thank you, again, to William for his insight into this case in the cover note.

 

ALTMAN’S ADMINSTRATIVE (AND LEGISLATIVE) AGENDA

Howard B. Altman

[email protected]

 

Guidance on Accident and Disability Policies

The New York Department of Financial Services (“DFF”) issued Circular Letter No. 18 on October 20, 2017 to offer guidance to insurers as to what benefits should be offered under accident and disability insurance policies. The letter may be viewed at:

         

          http://www.dfs.ny.gov/insurance/circltr/2017/cl2017_18.htm

 

The purpose of the letter is to offer guidance on policy drafting, not claims administration.

 

The letter begins by reminding carriers that under 52.1(c) of 11 NYCRR 52 (Insurance Regulation 62), any benefits offered by insurers must provide real economic value, and that benefits that are unduly complex or unduly limited, are prohibited.  DFS lists of approved benefits, illustrative nut not exhaustive, as a template:

 

1. Benefits designed to encourage the use of safety equipment, including:

  • A seat belt benefit that provides an additional benefit to the insured for injuries sustained during a covered accident while the insured was wearing a seat belt;
  • An air bag benefit that provides an additional benefit to the insured for injuries sustained during a covered accident while the insured’s vehicle was equipped with an airbag; and
  • A helmet benefit that provides an additional benefit to the insured for injuries sustained during a covered accident while the insured was wearing an appropriate helmet.

2. Benefits designed to encourage the insured’s treatment and recovery following a covered accident or disability, including a:

  • Medical expense benefit that covers the cost of medical treatment for the insured’s injury resulting directly from a covered accident in an accident policy;
  • Rehabilitation benefit that provides an indemnity payment to the insured to encourage participation in a rehabilitation program designed to help the insured return to work;
  • Family lodging or transportation benefit that covers the cost for a companion who accompanies an insured who is admitted to a hospital; and
  • Mental health or family therapy counseling benefit in an accident policy that provides a benefit covering grief or mental health counseling services for a family member of an insured who dies in a covered accident or suffers another significant covered loss.

3. Benefits designed to help the insured return to work after a covered accident or disability, including:

  • Dependent care for children, spouses, or parents;
  • Job training and education for covered insureds; and
  • Reasonable physical modifications to a home, vehicle, or workplace.

4. Benefits that provide substantial economic value or support the health care needs of the insured, including a:

  • Waiver of premium benefit that waives future premiums due under the policy once the insured experiences a covered accident or becomes disabled;
  • Family extension benefit that, pursuant to 11 NYCRR § 52.18(e), provides for the continuation of coverage for the insured’s dependents following the death of the insured when the insured has family coverage;
  • Catastrophic disability benefit in a disability income insurance policy that provides a benefit for an insured who meets the definition of disabled under the policy and cannot perform a specified number of activities of daily living;
  • Premium assistance benefit in a disability income insurance policy that covers the employee’s contribution towards health insurance coverage while the insured is disabled;
  • Cost of living adjustment benefit in a disability income insurance policy that provides an increase in the monthly disability benefit after the insured has been continuously disabled for a specified waiting period;
  • Retirement assistance benefit in a disability income insurance policy that either pays a benefit to a retirement plan, such as a 401K, to which the insured contributed prior to the disability, where the benefit is limited to the employee’s contribution in a group disability income insurance policy, or a benefit that pays to establish a stand-alone retirement account for the insured;
  • Common carrier benefit in an accident policy that provides a benefit if the insured is injured as a result of a covered accident while a fare-paying passenger on a train, plane, bus, boat, or other commercial carrier;
  • Exposure or disappearance benefit in an accident policy that presumes the insured is deceased and pays the accidental death benefit after a certain period of time following the insured's presumed death due to exposure to hazardous weather conditions or disappearance due to a conveyance loss, such as the sinking of a ship or an airplane crash;
  • Common disaster benefit in an accident policy that provides a benefit if the insured and the insured’s spouse both die in the same accident for which a benefit is payable for the loss of both lives; and
  • Medical repatriation or emergency medical evacuation benefit in an accident policy that provides a benefit for transportation expenses when an insured suffers an illness or injury while traveling and needs medical transportation to seek medical care or return home.

 

* * *

DFS advised that the following categories of benefits are generally impermissible for inclusion in an individual or group accident policy or disability income insurance policy.

1. Additional benefits predicated on loss due to violent and external means are prohibited pursuant to 11 NYCRR §§ 52.17(a)(8) and 52.18(b)(1). This includes a:

  • Felonious assault benefit;
  • Natural disaster or weather related benefit (e.g., a lightning strike or hurricane);
  • Hijacking benefit (including all modes of transportation);
  • Home invasion benefit;
  • Kidnapping benefit; and
  • Terrorism benefit.

2.  Benefits that are unduly complex, or unduly limited. This includes a:

  • Bonus benefit that provides a benefit solely because the accident occurs while traveling on official business for an employer;
  • Commutation benefit that provides a benefit because the accident occurs while the insured is traveling between his or her home and place of work;
  • Alternative commuting benefit that provides a benefit when the insured is using an alternate means of transportation for commuting necessitated by discontinuance of service, strike, or major breakdown of systems the insured normally uses in commuting; and
  • Pedestrian benefit that provides a benefit for an insured that is injured while walking.

3. Benefits that lack a rational nexus to either accident or disability income insurance, including a:

  • Loss of professional license benefit in a disability income insurance policy, for reasons unrelated to the insured’s health; and
  • Repatriation or evacuation benefit that is not triggered by the insured’s accident in an accident policy or triggered by the insured’s sickness in a disability income insurance policy, including a repatriation or evacuation benefit due to political unrest or the threat of contracting an illness due to a pandemic.

* * *

The following benefits are approved/recommended for disability policies:

  • Line of duty coverage that provides a benefit for an insured serving as a public safety officer, police officer, corrections worker, security officer, special weapons and tactics team member, or bomb squad member while performing official duties or sanctioned department activities (e.g., felonious assault, bullet proof vest, bomb scare, gunshot, or post-traumatic stress disorder benefits);
  • Firefighter or first responder coverage that provides a benefit for an insured serving as a firefighter or first responder, including volunteers and auxiliary members, while performing official duties or sanctioned department activities (e.g., felonious assault, burns, cosmetic disfigurement from burns, or post-traumatic stress disorder);
  • Pilot coverage that provides a benefit for an insured who is a pilot and is injured while performing his or her job duties; and
  • Business travel coverage that provides a benefit for accidents or disabilities occurring while the insured is traveling for his or her employer.

* * *

Insurers are reminded that pursuant to 11 NYCRR § 52.1(c), the Department only will approve benefits for inclusion in accident policies and disability income insurance policies when they contain a rational nexus to accident insurance or disability income insurance, provide a real economic value, do not produce superficial differences or play upon people’s fears of particular diseases, are not unduly complex or unduly limited, meaningfully expand consumer choice but do not serve to confuse and make intelligent choice more difficult, provide a substantial economic benefit, are not contrary to the health care needs of the public, and do not contain provisions that confuse or obfuscate.

 

DFS directs any questions regarding the circular letter to Jason St. James, Senior Insurance Attorney, Health Bureau, New York State Department of Financial Services, One Commerce Plaza Albany, NY 12257 or by e-mail at [email protected].

 

OFF THE MARK
Brian F. Mark
[email protected]

 

11/02/17       Pekin Ins. Co. v. JB Architecture Grp., Inc.
Appellate Court of Illinois, Second Department
Appellate Court of Illinois Affirms Lower Court’s Finding of a Duty to Defend Where Construction Defect Allegations in Underlying Complaint were Ambiguous and did not Preclude any Possibility of Coverage

This declaratory-judgment action arises out of an underlying construction defects action alleging bodily injury and property damage claims for breach of contract, negligence, breach of implied warranty of good workmanship, and breach of express warranty.  After a fire destroyed the home of the underlying plaintiff, Brady O’Mary (“O’Mary”), O’Mary hired the defendant, JB Architecture Group, Inc. (“JB”), to construct a replacement home.  After its construction, O’Mary commenced the underlying action against JB.

 

With regard to the negligence claim, the underlying complaint alleged that JB breached the contract, acted negligently, and constructed a residence riddled with defects.  The defects in the construction of the residence damaged the existing foundation causing water to infiltrate the residence, damaging the underlying plaintiff’s personal property.  The underlying complaint further alleges that JB’s negligence resulted in additional cracks in the foundation that caused water infiltration and, thereafter, the formation of mold on the foundation, the improvements and fixtures purchased by the underlying plaintiff, and on or in the underlying plaintiff’s personal property.  The presence of mold caused allergic reactions, headaches, and other bodily suffering for the underlying plaintiff and his family.  Furthermore, the water infiltration damaged and destroyed the underlying plaintiff’s personal property.

 

JB tendered its defense against O’Mary’s claims to its general liability carrier, Pekin Insurance Company (“Pekin”).  Pekin defended JB subject to a reservation of rights and filed a declaratory-judgment action alleging that it had no duty to defend JB under its policy.  Regarding the negligence claim, Peking alleged it had no duty to defend because bodily injury and property damage due to exposure to mold are excluded under the policy’s fungi or bacteria exclusion.  The exclusion states that it excludes coverage for bodily injury or property damage arising out of the actual, alleged or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of, any fungi or bacteria on or within a building or structure, including its contents, regardless of whether any other cause, event, material or product contributed concurrently or in any sequence to such injury or damage.  Under the policy, fungi includes mold.

 

Both parties moved for summary judgment and the trial court, in granting JB’s motion and denying Pekin’s motion, determined that the negligence cause of action in the underlying complaint triggered Perkin’s duty to defend JB.

In reviewing the lower court’s decision, the Appellate Court reiterated that to determine whether a duty to defend is owed, a court must compare the allegations in the complaint to the relevant provisions of the policy.  If the facts alleged fall within, or potentially within, the policy’s coverage, the insurer is obligated to defend its insured.  As such, an insurer may not justifiably refuse to defend a lawsuit against its insured unless it is clear from the face of the underlying complaint that the allegations in the complaint fail to state facts that bring the case within, or potentially within, the coverage of the policy.

 

In its motion for summary judgment, Pekin argued that because O’Mary’s negligence cause of action asserted property damage caused by both water and mold, the fungi or bacteria exclusion applied to exclude coverage for the negligence claim.  In its motion, JB argued that O’Mary’s negligence cause of action alleged water damage to personal property distinct from damage to personal property caused by mold and therefore, the fungi or bacteria exclusion did not apply to the alleged water damage.

 

In its decision, the Appellate Court was unwilling to assume that all of the alleged damage to O’Mary’s personal property was caused by both water and mold.  The court held that an equally reasonable interpretation of the allegations was that O’Mary alleged water damage to some personal property and mold damage to other personal property.  The court found that, at the very least, the allegations were ambiguous and noted that vague, ambiguous allegations against an insured should be resolved in favor of finding a duty to defend.  As O’Mary’s allegations did not preclude any possibility of coverage, Pekin’s duty to defend was triggered.  Accordingly, the granting of summary judgment in favor of JB was affirmed.

 

EARL’S PEARLS
Earl K. Cantwell
[email protected]

 

07/13/17       Painter Tool, Inc. v. Dunkirk Specialty Steel, LLC

2017 U.S. Dist. Lexis 108308 (W.D. Pennsylvania)

A Primer on Defective Materials Claims

Many insurance claims and issues revolve around allegations of defective materials, and this recently decided case in Pennsylvania is a good primer on the nature and problems with the various possible claims that may be advanced. 

 

Painter Tool had a contract with the U.S. Navy for steel valves.  It contracted for stems for the valves, and the steel manufacturer, Dunkirk Specialty Steel, provided a certification that the stems met specifications and, accordingly, payment was made in full.  However, a hardness test showed that the steel did not meet requirements, oddly enough because it may have been harder than originally represented.  Painter spent $275,000 to replace the valves, and also sued for damages to its reputation for allegedly causing it to lose future Navy contracts. The District Court then had to parse out the various defective material claims alleged in Painter Tool’s lawsuit. 

 

Painter Tool alleged that the goods were non-conforming.  In deciding the motion to dismiss, the Court ruled that this may be a plausible claim that there was a material difference between the specs for the steel as ordered and as delivered.  However, this was virtually the only claim that survived judicial scrutiny. 

 

Painter Tool also alleged that the supplier breached an implied warranty of merchantability, but the Court granted the motion to dismiss this claim because, whether or not the steel failed to meet contract specs, there was no alleged defect that prevented the steel from being used for an ordinary commercial purpose.  Variation from contractual specifications did not necessarily mean the steel was defective. 

 

Painter Tool asserted that the supplier breached an arguably stricter implied warranty of fitness for a particular purpose.  The Court dismissed this claim because there was little or no evidence that the supplier knew the details about the Navy project, or the “ultimate” purpose to which the steel was being put.  Knowledge is central to the implied warranty of fitness for a particular purpose, and the plaintiff here did not establish that the steel supplier had it, and the Court granted the motion to dismiss on this point. 

 

Painter Tool also charged the supplier with breach of an express warranty, but this claim was dismissed because the steel supplier argued it only made an express warranty to an intermediary contractor, and no such express warranty ran in favor of the plaintiff, the ultimate customer/consumer. 

 

Not to be dissuaded, Painter Tool made a claim for an allegedly misleading materials certification, but the supplier argued that the “economic loss rule” barred a negligent misrepresentation claim.  Painter Tool argued that the case fell within an exception to the economic loss doctrine which in Pennsylvania renders it inapplicable where the information that will be foreseeably used and relied upon is “negligently” supplied by an architect, engineer, or design professional whose business it is to provide such information.  However, although the supplier here was a specialty steel manufacturer, they were not akin to an architect or engineer whose business in connection to the construction world is to supply information, therefore that exception did not apply, and the economic loss rule barred any negligence or tort claim. 

 

Therefore, presumably, the case will proceed primarily based upon the one claim that survived the motions to dismiss, that there was a material difference between the specifications of the steel as ordered and as delivered. 

 

This case presents a good review of the various types of claims that may arise when defective products are supplied for equipment, construction, or in the manufacturing process.  The Court here logically went through the various claims and applied the applicable law unique to that particular claim, and rendered a decision as to whether or not that claim would survive preliminary motions to dismiss. 

 

This case also represents the importance of closely analyzing a claim or pleading, determining the causes of action that are alleged, and making appropriate initial motions to dismiss claims (or parts of claims) early in the litigation process.  In this case, the motions to dismiss removed the majority of the claims from future litigation and consideration.  This is particularly important in federal court and other jurisdictions where interlocutory appeals are not permitted, which renders the rulings law of the case and not subject to appeal until the case is finally decided. 

 

This case also represents a good analysis of the economic loss rule serving to bar a negligence claim.  There is a recognized exception under Pennsylvania law with respect to design professionals providing information such as drawings, blueprints, schematics, etc. for a construction job, but that exception is limited to individuals or parties whose primary job is to provide such information and not goods, products, assemblies, or services.